On the problems of descriptive names

The Full Federal Court has dismissed Kosciuszko Thredbo’s appeal from the dismissal of its claims against ThredboNet.

Kosciuszko Thredbo (KT) runs the Thredbo ski resort. Amongst other things, one of its subsidiaries promotes the range of activities available at Thredbo from a website having the domain name: thredbo.com.au. ThredboNet leases some of the accommodation at Thredbo from KT and hires it out to prospective skiers, partygoers and the like. Indeed, the terms of its lease from KT obliged it to hire out, or at least offer for hire, the leased premises. ThredboNet had the, er, gall to promote its accommodation, amongst other things, from websites having “thredbo” in their domain names including “thredbo.com”.

KT contended that this conduct was passing off its reputation in “Thredbo” and misleading or deceptive conduct contrary to s 18 of the Australian Consumer Law.

The Full Court agreed with KT that the trial Judge had erred in requiring KT to demonstrate it had acquired sufficient secondary meaning in Thredbo, the name of the place, that KT had the exclusive right to use the name. This did not help KT in the end:

31. In the end, the word “Thredbo” is a geographical name of a location in New South Wales. The appellants’ resort and businesses are located there and they hold (and their predecessors in title held) the head lease over the land on which the village and resort complex are located. But others also operate businesses, as sublessees, in the physical location known as Thredbo. The real issue was not whether the appellants had established a monopoly over the right to use the word “Thredbo” but whether they had established that the respondents’ conduct in using that word was likely to lead ordinary or reasonable consumers seeking accommodation or services in Thredbo into believing that the respondents’ business or the accommodation or other services that the respondents were offering was or were that or those of the appellants: Campomar 202 CLR at 87 [105]; Office Cleaning 63 RPC at 42. The more significant issue, then, is whether the primary judge erred in his conclusions on the question whether the respondents’ conduct was misleading or deceptive (or likely to be so).

The trial judge didn’t.

There were a number of strands to the Full Court’s reasoning. The Full Court recognised that some degree of confusion must be accepted where 2 traders use descriptive words otherwise one would be given an unfair monopoly.

In this case, the evidence from Google search results showed that there were a number of businesses that advertised with “Thredbo” in their name and/or domain names. ThredboNet’s website looked sufficiently different to KT’s websites and was limited only to the limited range of accommodation it provided. After the proceeding commenced, ThredboNet had included a disclaimer on its website. There was an initial form and a second, more explicit form. Either was sufficient:

We are not satisfied that a consumer who went to any of the respondents’ websites would reasonably have associated the operator of the website with the appellants. The respondents’ domain name www.thredbo.com was very similar to that of KT, namely www.thredbo.com.au. A consumer might easily be led to the former website thinking it was that of the appellants when doing an internet search. But in today’s society the ordinary or reasonable consumer seeking accommodation, or other goods or services, on the internet will frequently click on a result in a web search thinking it is a link to a particular site, only to find when his or her browser is directed to the selected site that it is not the site of the supplier or business that the consumer wanted. The ordinary, reasonable consumer who came upon the home page of www.thredbo.com would have seen, depending on when he or she accessed it, the first or second disclaimer in the middle of the page. Each disclaimer appeared under a recognisable, distinctive heading “About Thredbo.com”. It did not have the appearance, as asserted by the appellants, of being “buried in the text”.

This is not an endorsement of the initial interest confusion theory.

In the course of reaching their conclusion, the Full Court at [43] endorsed the proposition that:

…. Ordinarily, most people searching for a term or information will look at the first page of search results and then select the most apparently appropriate link or links from that page before they would move to a second or subsequent page of search results. Indeed, they would be unlikely to see any need to go to a second or subsequent page of search results unless they had not found some satisfactory site or sites on the first page.

There was a third issue: clause 4.3 of ThredboNet’s lease from KT appeared to forbid the use of “Thredbo”:

4.3 NO USE OF ‘THREDBO’

The Sublessee must not use or permit the use of the word ‘Thredbo’ in connection with any business carried on by the Sublessee, without the prior written consent of [KT].”

(Emphasis added by Full Court)

Because ThredboNet was required by the lease to hire out the accommodation for at least 26 weeks of the year, cl 4.3 could not mean ThredboNet could not use “Thredbo” in connection with that business. At a minimum, it must have been contemplated by both parties that ThredboNet would be able to tell its customers and potential customers the address of the properties. Further, the Full Court pointed out that the restraint was not a restraint in respect of the land on which the leased properties had been built. The restraint operated quite independently and separately from the land. Finally, KT did not provide evidence, or sufficient evidence, that a restraint of this kind was commonly accepted in such contracts as a normal incident of the arrangement. Accordingly, cl. 4.3 was invalid at common law as an unreasonable restraint of trade and operated so far outside any permissible scope that it was not capable of being read down under s 4 of the NSW Restraints of Trade Act.

Question: would it have made any difference if KT had a registered trade mark?

Kosciuszko Thredbo Pty Limited v ThredboNet Marketing Pty Limited [2014] FCAFC 87 (Siopis, Rares and Katzmann JJ)

 

Lid dip: Sue Gatford

Copyright authorisation and the end of iiNet?

Crikey.com.au has a link to what it says is the Commonwealth Government’s Online Copyright Infringement Discussion Paper July 2014.

So far as I am aware this document has not been published on the AGD’s website?

Something to think about in drafting an exclusive licence

The Full Court has declared that a former exclusive licensee has to contribute towards the costs of patent infringement litigation. Cementech has a patent, No 2007219709, for a “matrix of masonry elements and method of manufacture thereof”. It had granted Austral an exclusive licence for a term of 4 years commencing in February 2010. Austral had an to renew, but didn’t take it up. There were provisions in the licence agreement dealing with infringements. There was the usual clause requiring Austral to tell Cementech if it came across any infringements. Then clause 9.2 provided:

9.2 Infringement Actions

(a) Upon receipt of an Infringement Notice [Cementech] may, at its sole discretion, take all steps reasonably required to protect the Intellectual Property from infringement.

(b) In the event that [Cementech] elects to initiate proceedings for prosecuting or defend any Claims with respect to the Intellectual Property, all expenses incurred by [Cementech] in conducting any such proceedings or defending any Claims will be borne by the parties equally and all amounts received (including in respect of costs) from settlements or adjudications will be dealt with in the manner described in clause 9.2(f).

….

Cl 9.2(f) went on to provide for distribution of any monetary awards resulting from the litigation to pay down the costs and the balance to be split between the parties in proportion to their losses suffered.

Cementech started infringement proceedings against Adbri during the term of Austral’s licence. Austral first tried to argue that, since it hadn’t given notice of the infringement to Cementech, cl. 9.2 didn’t apply. That went for six (well, five reasons):

  • the words “in the event that” in cl 9.2(b) established a condition, but not one triggered by any notice from Austal
  • the parties had a common interest in stopping infringements
  • Cementech could take proceedings regardless of receipt of a notice from Austral
  • (as is quite common) the scheme of the clause allowed Cementech first choice whether to sue or not – Austal did get rights to sue during the term if Cementech did not take action
  • under the terms of the licence, Austral did not have a discretion to notify infringements, if it became aware of one, it had an obligation to notify.

The real bite in the clause, however, is that the Full Court held it meant Austal had to pay half the costs of the infringement action against Adbri even after the licence had come to an end. Austral argued that the licence having terminated, the obligation terminated too citing the Westralian Farmers case. The Full Court however held:

It must have been in the common contemplation of the parties that Cementech might commence proceedings during the term which would continue after the expiry of the term. Clause 9.2(b), if engaged by the commencement of proceedings during the term, survives termination of the Licence Agreement, as does cl 9.2(f). It is apparent from the scheme of cl 9.2, which is a code in respect of litigation commenced during the term as Cementech submitted, that the parties intended the cost burden provision (cl 9.2(b)) and the proceeds benefits provision (cl 9.2(f)) to survive. That intention prevails …

The Full Court pointed out that under clause 9.2(f) Austal had a right to claim its proportionate share of any pecuniary remedies even after the licence terminated. The Full Court noted tersely:

The examples of commercial impracticality advanced by Austral apply equally during the term. The parties simply did not provide details about how their relationship in respect of the litigation other than in respect of cost sharing and benefit sharing would be regulated. But that is no reason to rewrite the commercial deal they did. Nor is the fact that, as it turns out, Austral does not wish to fund these particular proceedings.

If you are thinking about using this clause as a model for your future contracts, the Full Court recognised that the scheme set up by the parties might not work to either’s benefit in different cases:

Austral’s reluctance to be bound by cl 9 is understandable. The provision is capable of working to its disadvantage. For example, Austral (as apparently in the present case) may not agree that there has been any infringement and thus may not wish to fund any part of the proceedings. Austral’s interest in the proceedings may be limited depending on the nature of the alleged infringement and the time during the term when the proceedings are commenced (presumably, Austral’s interest might be greater if proceedings are commenced earlier rather than later in the term). Austral may well perceive, accurately, that it will pay 50% of the costs of expensive proceedings which will lead to no or little reward for it if Cementech manages to obtain any proceeds from the litigation. But all of these circumstances might apply equally to Cementech in different circumstances. As Cementech submitted, the potential for an unequal commercial interest in proceedings results from the deal the parties did when they entered into the Licence Agreement.

Austral Masonry (NSW) Pty Ltd v Cementech Pty Limited [2014] FCAFC 72 (Jagot, Nicholas and Yates JJ)

An arbitration clause means arbitrate

The Irelands were Subway franchisees.

Their franchise agreement with Subway included an arbitration clause:

10. DISPUTE RESOLUTION. The parties want to settle all issues quickly, amicably, and in the most cost effective fashion. To accomplish these goals, the parties agree to the following provisions that will apply to resolve any dispute or claim arising out of or relating to this Agreement, or any other Franchise Agreement the parties have with each other (a ‘Dispute’):

c. The parties will arbitrate the Dispute if the mediation clause in Subparagraph 10.a. is not enforceable, or the parties do not settle the Dispute under the informal discussion and mediation procedures above, or the Dispute is one which this Agreement provides will be submitted directly to arbitration, except as provided in this Agreement. The arbitration will be held in accordance with the United Nations Commission on International Trade Regulations and Law (UNCITRAL) Arbitration Rules administered by an arbitration association, such as the American Arbitration Association or the Institute of Arbitrators or Mediators Australia, at a hearing to be held in Queensland. The arbitration will be conducted in English and decided by a single arbitrator unless the law of Australia requires three (3) arbitrators. Any court having jurisdiction may enter judgment on the arbitrator’s award. Except as provided in this Agreement, a party must commence and pursue informal discussions, mediation, and arbitration to resolve Disputes before commencing legal action.

The Irelands, however, commenced proceedings against Subway in the Victorian Civil and Administrative Tribunal (VCAT) alleging breaches of the franchise agreement, negligence and misleading or deceptive conduct.

Subway applied to VCAT to have the proceeding referred to arbitration pursuant to clause 10. VCAT refused. The Supreme Court dismissed Subway’s appeal. The Court of Appeal, Maxwell P and Beach JA, Kyrou J dissenting, have allowed Subway’s further appeal and sent the matter to arbitration.

Section 8 of the Commercial Arbitration Act 2011 (Vic) provides:

8            Arbitration agreement and substantive claim before court (cf Model Law Art 8)

(1)  A court before which an action is brought in a matter which is the subject of an arbitration agreement must, if a party so requests not later than when submitting the party’s first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

As the heading indicates, this provision is part of a national scheme to implement the UNCITRAL Model Law on commercial arbitration.

The “problem” was that reference to “court”. While it was not a defined term in the Act, there are any number of court rulings declaring in no uncertain terms that VCAT is not a court – it is an administrative tribunal.

Maxwell P and Beach JA standing back and looking at the big (international) picture, however, held that for the purposes of the Act – a law designed to promote commercial arbitration as a dispute resolution mechanism – VCAT qualifies as a “court”. Maxwell P and Beach JA took somewhat different routes to reach that conclusion but it is perhaps best encapsulated in Maxwell P’s observation:

The clear policy of the Act (and of the model law which it enacts) is that, when parties have agreed to have disputes between them determined by private arbitration, neither party is at liberty to litigate the matter in dispute through the adjudicative mechanisms of the State. For this statutory purpose, in this statutory context, the Tribunal is indistinguishable from those other adjudicative bodies of the State which bear the title ‘court’.

I don’t know if other States or Territories operate under regimes similar to VCAT in, er, parallel to the court system but, as Croft J noted at first instance, Parliament set up VCAT to provide a speedy and inexpensive, low cost, accessible, efficient means of dispute resolution and, apparently, it handles the vast bulk of legal disputes here. But not disputes between franchisors and franchisees (where there is an arbitration clause).

Subway Systems Australia Pty Ltd v Ireland [2014] VSCA 142